Provisions in a new trade deal being negotiated between Canada and the European Union could add about $2.8-billion a year in costs to Canadian drug plans if implemented, a new report warns.

The estimate includes $1.3-billion more for public drug plans and $1.5-billion for private drug plans.

“This will create a huge hole in provincial budgets in particular,” Aidan Hollis, a professor of economics at the University of Calgary and co-author of the report, said in an interview.

Ontario alone could see drug costs jump $500-million, Quebec $412-million and B.C. $101-million annually, according to the new analysis.

Drugs, both prescription and over the counter, accounted for $31-billion of the $192-billion in health spending in 2010. Drugs have been the fastest-growing component of health-care spending for a number of years and the provinces have responded with a number of measures including tightening up drug formularies and sharply reducing the price they would pay for generic drugs.

Generics account for 54 per cent of prescription drugs and brand-name drugs 46 per cent.

In the negotiations, the Europeans have asked for three substantial changes in the laws and regulations that govern intellectual property protection related to brand-name drugs:

·Extending the term of patent protection by up to five years if drugs are stuck in the regulatory approval process;

·Lengthening the period of data exclusivity, which prevents generic companies from using data from clinical trials to create similar drugs, from eight years to 10 years or more; and

·Strengthening notice of compliance regulations, which ensure that generic companies are respecting patents, by adding an appeals process.

“The reasonable inference is that these changes are designed to allow innovating pharmaceutical firms to charge monopoly prices for a longer period,” Prof. Hollis said.

In other words, they are designed to delay the arrival of copycat generic drugs on the market and, in turn, encourage brand-name companies to invest more in research and development.

According to the report, the proposed provisions would delay the arrival of generic drugs on the Canadian market by an average of 3.5 years. Some blockbuster drugs are set to come off patent, which is why the impact would be in the billions.

Generics cost roughly 25 to 50 per cent of the equivalent brand-name drug.

Intellectual property laws are extremely complex but, in brief, brand-name drugs have a 20-year patent in Canada; in the real world, that translates to about nine years of exclusivity on the market before generic companies can produce similar drugs. Virtually every drug goes through a lengthy legal battle before a generic actually hits the market.

Brand-name drugs are one of the leading exports from the EU to Canada. In 2009, Canada imported $5.3-billion in pharmaceutical products from the EU and exported $1.3-billion to European countries.

The 69-page report, entitled “The Canada-European Union Comprehensive Economic & Trade Agreement: An Economic Impact Assessment of Proposed Pharmaceutical Intellectual Property Provisions,” was commissioned by the Canadian Generic Pharmaceutical Association. It will be released Monday in Ottawa.

Prof. Hollis and his co-author, Paul Grootendorst of the University of Toronto’s Faculty of Pharmacy, stressed that while the paper is commissioned, it is not designed to promote the point-of-view of generic manufacturers.

Prof. Hollis said their role was simply to examine the potential economic impact of the trade provisions and they do not take a position on whether the provisions are good or bad.

The Canadian Chamber of Commerce, for its part, strongly backs the new provisions, saying Canada risks losing out on the next wave of lucrative pharmaceutical investment and jobs unless it matches tougher patent protection for drug makers in the U.S. and Europe.

“The world has continued to move on. We haven’t,” said Chamber president Perrin Beatty.

The new report, however, calculates that the EU proposals would cost Canadians $2.8-billion extra for prescription drugs annually, but generate only $345-million of additional investment in pharmaceutical research and development in Canada.

“If the goal is to increase R&D, you have to wonder if extending exclusivity is the way to do it,” Prof. Hollis said.

Negotiations toward a Canada-EU trade agreement – which is designed to reduce tariffs and trade restrictions in a variety of sectors – have been under way since 2009. International Trade Minister Peter Van Loan has said he hopes to conclude a deal by the end of 2011.

The negotiating positions of each side are supposed to be confidential but the EU position on pharmaceutical-related provisions was leaked and has circulated broadly. It is not clear if Canada has made a counter-proposal.

Canadian spent $25.4-billion on prescription drugs in 2009, the most recent year for which detailed figures are available. That includes $14-billion in private spending and $11.4-billion in public spending, according to the Canadian Institute for Health Information.

Russell Williams, president of Rx & D, the organization that represents brand-name drug companies, said he could not comment on the specifics of the new report but insisted that updating Canada’s intellectual property regime – as is being proposed in the new pact – is essential.

“If we want to attract innovation dollars and the good jobs that come along with them, we need a globally competitive regime and we don’t have one now,” he said.

Mr. Williams also said he found it a bit hypocritical that generic manufacturers seem so concerned about drug costs when “we’ve been overpaying for generics for the past 20 years.” (Canada had, until recently, some of the highest generic prices in the world.)

He also noted that “without R&D, without innovative drugs, there will be nothing for generics to copy.”

PROPOSED PLAN'S IMPACT

Under the provisions of an EU trade deal, Canada's annual drug-plan cost increases would be: